Expert views: Budget raises spending

Expert views: Budget raises spending

India must make tough spending choices, Finance Minister P Chidambaram said on Thursday, even as he unveiled a bigger-than-expected outlay for the coming fiscal year in one of the most highly anticipated Indian budgets of recent years.

Total budget expenditure will hit Rs 16.65 trillion in the fiscal year that begins on April 1, Chidambaram said, despite expectations for cuts from current year levels, which are on track to hit Rs 14.3 trillion, or 96 per cent of the budget target.

Commentary

Rupa Rege Nitsure, Chief Economist, Bank of Baroda, Mumbai

"He has made allotments for infrastructure, construction of warehouses; so as long as the spending is on account of capital expenditure, one need not view it negatively."

Market reaction

The 10-year yield was up 3 basis points at 7.82 per cent from levels before the finance minister began his budget speech.

Background

i) The budget comes against the backdrop of the slowest economic expansion in a decade, strong inflation pressures and high interest rates. Large fiscal and current account deficits have pushed India to the brink of sovereign ratings downgrade.

ii) RBI officials have warned that curtailing capital investment on projects with strong multiplier effects like building roads and bridges would hurt growth. They also worry that maintaining populist spending on subsidies for food, fuel, fertiliser and cooking gas will push up prices.